A University Challenge – How Do You Navigate a Hard Insurance Market?

For those of you with family and friends studying in University, it’s only a matter of weeks until the start of the new term in September. For those working in the education sector, work has not stopped through the summer as Universities around the country prepare for the influx of fresher students as well as those returning both in-person and virtually.

August is also a very busy period for the insurance teams at Universities with many going through the process of finalising and renewing their insurances for the academic year.  This year, many Universities will be experiencing the challenges of a hard insurance market i.e. insurers having less appetite for risk and therefore the choice of insurance products and solutions is significantly reduced, often at increased cost of premiums. All of this at a time when Universities are adjusting teaching models to adapt to dealing with the pandemic, so the priority for insurance managers at Universities will undoubtedly include understanding their choices and options to mitigate the impact of increasing premium rates.

Whilst the entire insurance market is challenging, there are two classes of insurance that continue to be particularly difficult to navigate and secure for many organisations, especially Universities:

1. Property Damage and Business Interruption insurance

Market rates increased by 15-20% on prior year in the first quarter of 2021 and insurers are reducing their capacity, only willing to offer to cover a proportion of the risk or imposing loss limits.  This is particularly noticeable on large accumulations of buildings where any of the construction details are unknown or where combustible materials are present.

A growing number of University estates have a real desire to lower their carbon footprint and embrace modern methods of construction. There are clearly many positives in taking this approach however in some cases, those decisions, which have been highlighted in a recent article posted by our Risk Management team titled ‘Modern Methods of Construction – Avoiding Combustible Elements’ can lead to concerns by insurers from a fire risk perspective.

What practical steps can you take to secure a better deal for Property Damage and Business Interruption cover from insurers?

Firstly, preparation before you approach the market is key. Surveys and gathering the right information are vital to securing the best offer from the market. At Griffiths & Armour we work with our clients in the education sector, well in advance of their renewal period, to conduct comprehensive surveys, including larger property blocks, to assess and articulate our client’s Estimated Maximum Loss (EML) potential.

By taking this approach to EML we can achieve two things:

• Helps insurers decide how much capacity to deploy and how;
• Helps our clients decide what loss limit thresholds are appropriate to purchase.

Having completed the first exercise, the next key decision to make is on your programme structure and whether to adopt a coinsured basis i.e. insurers share the risk between them from the ground up.

Alternatively, you may decide that your insurance programme structure needs to adopt a ‘layered’ approach. This involves insurers taking a share of the risk in segments, with the lower layers being more expensive and those higher up the programme being cheaper and therefore potentially less risk / more attractive to insurers.

It’s also worth highlighting that some insurance brokers choose to charge additional fees for the cost of these crucial surveys. However, at Griffiths & Armour, we feel this is a fundamentally important component in successfully helping our clients navigate through the challenging insurance market and securing property and business interruption insurance, so we absorb these costs into our core fee rather than as a charge-able extra.

2. Professional Indemnity (PI) insurance for Universities

More commonly associated with professions that provide consultancy and advisory services such as solicitors, architects, consulting engineers and financial advisers, PI insurance for Universities was once quite a benign sector of the insurance market with the cover rarely being called upon. Over the last 10 years, the introduction of tuition fees means students are now also consumers. So, the expectations of students have changed and so has the propensity to claim when those expectations have not been met. In addition, Universities have looked to grow their revenue by diversifying their activities, including securing research income and creating new revenue streams. The potential of claims being made against these new and diverse activities can also increase.

As a result, the profile and frequency of claims has changed and this has been underlined in the last 3 years with some of the leading insurers experiencing losses leading them to change their stance. The type of PI claims received against Universities have included:

• Aggrieved students as a result of strike action by lecturers.
• ‘Failure to educate’ claims.
• Provision of unaccredited courses by universities leading to students not getting the job they expected upon completion.

Putting the education sector to one side, the Professional Indemnity insurance market has also hardened sharply across all sectors over this period, so when you add the problems caused by the Covid-19 pandemic, you can begin to understand how challenging PI insurance renewals for a University can become.

Some market leading insurers have applied changes to the University sector in the form of higher premiums (in some cases +20% increases) and notably an any one claimant excess rather than any one claim.

In summary, the appetite for new business is very limited amongst competing insurers in what was already quite a small field of insurers….it is a tough insurance market for a buyer!

What steps can you take to enhance your ability to secure the most competitive and comprehensive PI insurance cover available from the market?

Your broker should be engaging with you regarding your renewal much earlier than usual. In addition to the earlier advice in this article to begin preparation and information gathering as early as possible, it is also important to differentiate your individual University’s risk from your peer group. Typically, this can be delivered via a quality risk presentation, good claims experience and early broking to alternative insurers. All of which should be developed in full consultation with you by your broker.

It’s also important not just to accept the holding insurer stance and look to present feedback from a range of insurers (even if some of this feedback is negative), so that University stakeholders can understand the competitive landscape.